CIWMB Board Meeting - Item 10 (Presented at the Strategic Policy Development Committee)

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California Integrated Waste Management Board

CIWMB Board Meeting - Item 10(Presented at the Strategic Policy Development Committee)

Discussion of Possible Adjustments to the Recovery and Recycling Payment Rates and the Electronic Waste Recycling Fee within the

Covered Electronic Waste Recycling Program

April 22, 2008www.eRecycle.org

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This item will cover:

• Recap of program growth to date• Preliminary findings from 2007 Net Cost Reports• Summary of DOF validation project • Discussion of industry business practices• Analysis of fund condition / financing considerations • Update on future uncertainties• Open discussion

• But first…

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Handling Electronic Waste In CA•Electronic waste is hazardous waste

–Includes covered electronic waste (CEW)

•May be managed as universal waste•Presently two categories:

–CRT (cathode ray tube) materials–Universal waste electronic devices

“CRT material handler” means any person who generates, accumulates, stores, treats, or recycles any universal waste CRT material.

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Handling Electronic Waste In CA

• DTSC regulates universal waste handling–Notification, reporting, inspections, etc

• CIWMB only pays approved CEW recyclers–Recyclers obligated to pay approved collectors–Collectors might compensate handlers

• Artificial value of CEW does create regulatory and compliance challenges

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Electronic Waste Recycling Act

• Established system to pay for the recovery and recycling of CEW

– Only CEW from CA sources are eligible– Must be recycled (cancelled) in CA– CIWMB sets payment rates to cover average net costs

• Payment system is funded by fees assessed on consumers of new covered electronic devices (CED)

– DTSC determines what constitutes a CED– CIWMB determines fee structure to maintain solvency

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CEW Payment System

Consumer RetailerFee paidat purchase

Remits fee (Quarterly)

Deposits fee

Program Implementation

Permitting+ Inspections

Fee Collection

Recycling payment(48¢/lb)

Recovery payment(20¢/lb)

IWMB

DTSC

BOE

Recyclers Collectors

E-Waste Account

USED item recycled as “E-Waste”

NEW itempurchased

E-Waste

Electronics

$$

Payment Claim

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Revenue, Payments & Volumes•FY 2004/05 - $31 million

–$11.4 million claimed (~24 million lbs)

•FY 2005/06 - $78 million* –$45.9 million claimed (~95 million lbs)

•FY 2006/07 - ~$78 million– ~$75 million claimed (>150 million lbs)

•FY 2007/08 - ~$83 million projected– ~$105 million projected (>210 million lbs)

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(Note that 1st quarter 2008 quantities represent only a portion of anticipated claims. Recyclers may submit a claim up to 45 days after the end of a reporting month.)

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(Note that 1st quarter 2008 quantities represent only a portion of anticipated claims. Recyclers may submit a claim up to 45 days after the end of a reporting month.)

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Financial Considerations•Fund Condition:

–At current rates, depletion in FY 08/09–CIWMB has authority to make adjustments

•Revenue Source:–Current $6, $8, or $10 fee on retail CED sales –List / nature of CEDs will change over time

•Cost Demands:–CIWMB, DTSC, BOE operations–Recovery and Recycling Payments ($.48/lb)

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Payment Rate Considerations• CIWMB must reconsider “payment schedule” on or before July 1, 2008

– Rates should cover the average net cost for a collector to collect, consolidate, and transport, and for a recycler to receive, process, and recycle, covered electronic wastes.

• Net Cost Reports inform CIWMB

• Difficult to compare enterprises

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Net Cost Reporting• Approved participants must submit annual reports as/if directed by CIWMB

• Latest report was due March 1, 2008–Compliance improved–CIWMB disciplining violators

• Preliminary analysis of raw 2007 data–Trend of decreasing costs continued

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Costs Reported for 2005 Weighted Average Mean Median

Percentage Below Standard Payment

Rate

Recovery

Revenue 3.9 3.8 0.0

Cost 21.0 24.6 17.9

Net Cost 17.1 20.8 15.3 63%

Recycling

Revenue 5.7 5.5 5.1

Cost 30.9 39.1 31.8

Net Cost 25.2 33.6 27.5 50%

Costs Reported for 2006

Recovery

Revenue 2.0 2.3 0.4

Cost 18.7 17.2 15.0

Net Cost 16.7 14.9 14.2 66%

Recycling

Revenue 5.8 6.2 5.3

Cost 27.4 37.2 29.0

Net Cost 21.5 31.0 23.5 64%

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Net Costs Reported for 2007

(Preliminary)Weighted Average Mean Median

Percentage Below Standard Payment Rate

Recovery

Revenue 5.0 8.6 3.0 NA

Cost 19.8 21.5 18.0 NA

Net Cost 14.8 12.8 11.7 85%

Recycling

Revenue 8.8 7.6 7.1 NA

Cost 29.8 28.2 27.7 NA

Net Cost 21.0 20.6 20.7 78%

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Comparison of Weighted Average* Net Costs (cents/pound)

2005 2006 2007

(preliminary)

Recovery 17.1 16.7 14.8

Recycling 25.2 21.5 21.0

Total 42.3 38.2 35.8

* The weighted average reflects the overall industry cost, calculated as if the industry operated as a single organization – i.e., by dividing the total reported costs by total pounds for all participants in the study sample. By its nature, this measure is affected by the costs of larger operations more than smaller ones.

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Net Cost Report Validation• Confidence in reported costs?

• CIWMB retained DOF audit services–Used agreed upon procedures –Determined if available documentation supported reported costs–Targeted range of business sizes, models, and regions–Rated subjects using three-tiered scale

• Results mixed, but encouraging…–Refer to Attachment 3

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Net Cost Report Validation• Dual entities (collector/recyclers) tended to score well in validation

–Records supported reported costs–Applied to both collection and recycling activities

• Stand-alone collectors’ performance depended on focus of enterprise

–Handling that was incidental to broader activities tended to score poorly–Handling that was primary focus of enterprise tended to score well

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Qualitative Industry Survey• Program staff contacted participants

– 197 collectors contacted, 146 responded– 37 recyclers contacted, 26 participated

• Mean payment to collectors: $.22/lb– Some recyclers paying over $.30/lb

• Most collectors do not pay sources– Most do not charge for extra services– Most are not charged for service above regulatory basics

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Qualitative Industry Survey• What governs business transactions?

– Agreements address pricing, packaging, transportation, labor, non-compete, other supplies/support, etc.– Written contracts– Verbal agreements– No agreements

• Non-CEW payment: Highly variable• Evolving business climate

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Revenue Considerations• Program funded by Electronic Waste Recycling Fee

–Currently $6, $8, or $10 assessed on CEDs

• CIWMB has obligation to adjust fee for fund solvency

–Statute establishes adjustment factors–Must be done on or before August 1st

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Revenue Considerations• Fee adjustments will be necessary!

–Pace of CEW recovery has outstripped funds

• Degree & structure of adjustments will be dependent on need & trends

–Program growth, payment rate will affect need–Evolving mix of CED size categories

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Revenue Considerations•Historical total CED sales:

–2005 – 9.9 million units–2006 – 10.6 million units–2007 – 10.1 million units

•Allocation of CED sales in size categories:–2005 – 23% 72% 4%–2006 – 24% 67% 8%–2007 – 25% 64% 11%

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Revenue Considerations• Model assumptions:

– Loan of ~$40 million (repaid by late 2010)– CED sales volume and size allocations constant– Average revenue per CED sold

•Current average revenue is ~$7.64 per CED sold

– Aiming to remain solvent for two-plus FYs

• For discussion purposes only!!!

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Model 1: •No change to recycling payment rate ($.48/lb)•Assumes program growth of ~4 million pounds per quarter •Raise E-Waste Fee to $18.60 average revenue per CED sold

Possible fee structures to achieve average per device revenue of $18.60:

$6 / $22 / $28 $8 / $21 / $29 $10 / $20 / $30

FiscalYear Revenues

RetailerAdmin Fee

PoundsRecycled

RecyclingPayments

All OtherExpenditures

Loan Payments

Yr End Balance

FY 08/09* $ 185,704 $ (5,571) 300,000 $ (144,000) $ (12,660) $ (9,352) $ 28,008

FY 09/10 $ 207,743 $ (6,232) 366,667 $ (176,000) $ (12,660) $ (28,056) $ 12,803

FY 10/11 $ 207,743 $ (6,232) 433,333 $ (208,000) $ (12,660) $ (4,676) $ (11,022)

*Revenue in the 2008/2009 fiscal year includes loan amount.

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Model 2: •Change to recycling payment rate ($.40/lb)•Assumes program growth of ~4 million pounds per quarter•Raise E-Waste Fee to $15.60 average revenue per CED sold


$6 / $18 / $24 $7 / $17 / $27 $8 / $16 / $31

FiscalYear Revenues

RetailerAdmin Fee

PoundsRecycled

RecyclingPayments


Loan Payments

Yr End Balance

FY 08/09* $ 167,330 $ (5,020) 300,000 $ (120,000) $ (12,660) $ (9,352) $ 34,185

FY 09/10 $ 174,236 $ (5,227) 366,667 $ (146,667) $ (12,660) $ (28,056) $ 15,812

FY 10/11 $ 174,236 $ (5,227) 433,333 $ (173,333) $ (12,660) $ (4,676) $ (5,848)


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Model 3: •No change to recycling payment rate ($.48/lb)•Assumes program growth of ~2 million pounds per quarter•Raise E-Waste Fee to $15.60 average revenue per CED sold


$6 / $18 / $24 $7 / $17 / $27 $8 / $16 / $31

FiscalYear Revenues

RetailerAdmin Fee

PoundsRecycled

RecyclingPayments


Loan Payments

Yr End Balance

FY 08/09* $ 167,330 $ (5,020) 267,000 $ (128,160) $ (12,660) $ (9,352) $ 26,025

FY 09/10 $ 174,236 $ (5,227) 301,000 $ (144,480) $ (12,660) $ (28,056) $ 9,838

FY 10/11 $ 174,236 $ (5,227) 335,000 $ (160,800) $ (12,660) $ (4,676) $ 712


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Future UncertaintiesLatest on DTV Broadcasting Transition

– Consumer Electronics Association estimates DTV transition will result in only 15 million discards thru 2010

– 48% of OTA households surveyed plan to get converter box and use existing TV

– Over 10 million converter box coupons have been requested from NTIA by over 5 million households

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Summary• Several key factors to consider

–Program growth continuing; may be slowing? –Cost of recovery and recycling less than payments–Looming fund depletion–Future discard rate unclear

• CIWMB has authority to make adjustments–Payment rate adjustment to better reflect costs

•Will slow fund depletion•May also slow CEW recovery; impact participants

–Fee adjustment must cover shortfall•Ability to adjust annually allows flexibility and prudence

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Next Steps• Program will further evaluate need and options for payment rate adjustments

• Anticipate returning to Board in May for consideration of rate adjustments

• Program will refine models to assess impacts of fee adjustments

• Anticipate returning to Board in June for consideration of fee adjustments

www.ciwmb.ca.gov

Documents

CIWMB Board Meeting - Item 10 (Presented at the Strategic Policy Development Committee)